Virtual Organization

The changing dynamic of customer needs and business environment impose new ideas and concepts. One of these is the virtual organization (VO). This type of organization can be established and dissolved

quickly to respond to rapidly changing market opportunities. It is hard and sometimes impossible for a single organization to react to market demand and opportunities. Organizations develop a network of corporations that are familiar with each other and then define some rules of co-operation for a specific project, which would help all the involved benefit from the collaboration. The main emphasis of the VO is to complement and share resources in order to improve competitiveness as a whole and enable competition on a larger scale (Ulrich, 2001, p. 50). The enabling factor that allows this form of organization is technology, namely the major advances of the Information and communication technology (ICT). The approach of this briefing paper would be one of a consultant guiding an organization through the process of virtualness. Prior to diving into the key issues that an organization faces and if these key matters are being addressed or not, let us first identify the mechanisms of a VO. The literature on VO offers a wide spectrum of life cycle models. Sieber (1998) recognized five stages in the development of a VO “creation of a complementary resource base, co-operation of partners by a common business understanding, integration of the resource base by a transaction governance system, formulation of a common network strategy, and socialization by trust between the partners involved” (Sieber, 1998).

Creating a complementary resource base will allow the organization to identify organizations with competencies outside of its own, for partnership potential, if there is a market need. These are different organizations that have different strategies, resources and objectives. They do not necessarily have to be corporation but could also be a group, or an individual. The co-operation of partners by a common business understanding has the underpinning agreement to form a VO from an open-ended network of different organizations, only if there is a market opportunity. The ground rules of participation in the VO are drawn out and agreed upon by all members. Formulation of a common network strategy, in this phase, the members of the network of business partners implicitly agree on the common strategy to use as a VO, the procedures that have to be in place, the way the exchange of knowledge would be carried out especially if patent issues are involved, the use of information and most importantly the quality of work. And socialization by trust between the partners involved, in the creation of the network phase, corporations most likely would address these issues of trust and socialization.
Prior to initiating the contact with a group, a company or an individual for an operation in which different organizations jointly develop, produce, and market services, they would have known each other from prior collaborations or based on the expectation that together they have the competencies and resources to create added value for a specific customer or group of customers (Saabeel et al., 2002 p. 9). The participants would also bring with them an understanding of the networking phase. Again ICT is a fundamental factor in the coordination of activities in the various partners and each one of them should be able to bridge the difference of time and space for efficient communication. Some key matters organizations face related to virtualness are identified by Ulrich (2001, p. 46): selection of suitable partners and transaction costs resulting from trust development, organizational fit, multiple leaders. Each one of these points should be addressed by the organization as well. The selection of suitable partners could take a long time but the development and acknowledgement of the company’s core competencies will allow entrance into various networks and build relationships within the network to identify potential partners. Transaction cost for the first time around cannot be avoided because of the relationship building involved and the manpower required setting up everything the face to face required, meetings, correspondences and infrastructure coordination, but from then on, it should be negligible unless it is new partnership. Once potential partners are identified, the technological and sociological factors should be analysed for a good organizational fit. Since the partnership could be between two or more organizations, multiple leaderships could be problematic and organizational boundaries need to be set carefully to efficiently manage the joint project and avoid cross-organizational problems that could translate into more complicated trust tribulations.
(Plant, Murrell, p. 2) identified key aspects of virtualness and organizational culture in relation to innovation. In their analysis, it came clear that an organizational mission statement, vision, and strategy has to incorporate an innovative organizational culture in order to be competitive and survive the ever changing market dynamics, customer requirements and market opportunities. At this age of information technology development, organizations are networked and they maintain their key competencies but are in a relentless quest of new partnerships and co-operation with other companies to reposition themselves, to be effective in the market place, and most importantly be innovative in research and development bringing new products to market. Each one does what they do best and complemented with the work of one or more organizations, they can share cost, resources, and knowledge to create and market new products or respond to a market opportunity. VO supports innovation pursuits and a prerogative to the successful execution of this endeavor is the existence of corporate culture of innovation between the organizations involved or the clear spelling out of this objective in the strategy and objectives of the VO. Innovative pursuits will not be the only outlet for VO; there is a plethora of venues to explore. As long as the strategy of the different organizations embroil a new stratagem for the VO, the goals and objective would be identified and with collaborative interchange of resources, ideas and effective work, communication and efficient use of ICT, success can be achieved by the VO.
The effective use of knowledge, whether internal or external to the organization, requires a network. In the era of information technology, networked electronic communities thrive all over the Internet. Competitiveness of an organization whether virtual or not requires an interaction of knowledged-workers, systems and extra-corporate entities. This way, relationships could be formed with other organizations to share information to be more effective and to help position the organizations in short term relationships like virtualness, long-term market share and success. Organizations need to be continually repositioned to be effective in the market place. Skills enhancement is a fundamental activity for organizations that want to gain market share and be successful in the marketplace. The use of knowledge and market information is achieved partly from being a component of a larger network of organizational connectivity centered on the use and manipulation of both internal and external knowledge (Plant, Murrell, p. 4).
Tremendous benefits could be realized from successful execution of a virtual operation. Minimizing cost and increasing revenues are some of the main reasons why many corporations are operating, virtualness permits this by partnering with shared resources, cost, and improve competitiveness as a whole, along with the ability to compete at a larger scale than a single company alone could. Virtualness also allows the organization to be flexible and able to rapidly respond to market demands with the co-operation of one or more organizations. Virtualness provides an organization with the optimum value chain and the flexibility to be part of groups to deliver first class products to the marketplace, at the least cost possible, neither of which would have been possible for a single company to undertake. More importantly, being part of a network of large integrated companies helps an organization keep its finger on the pulse of the market place and demand, to leverage opportunities and satisfy individual customer needs nationally and internationally. VO is such a new field that emerged from the information revolution, it is difficult to find quantifiable data to illustrate its benefits to a corporation. Nonetheless, let’s look at the Dell Computer Corporation (Dell) as an example. Founded in 1984 by Michael Dell, now employs approximately 30,000 employees worldwide and has annual revenue of $12 billion. Dell uses a variety of suppliers and customers order using the Internet from a list of available options. Based on the match of the different components that are specified by the customer, the order is routed dynamically to one of the suppliers that are carefully chosen by Dell and all the interfaces are done through Dell system. This makes Dell a VO because Dell does not carry any inventory but rather uses the suppliers who incur the cost of inventory but are in partnership with Dell, which guarantees a constant flow of orders for the suppliers. The diversity of suppliers in partnership with Dell enables the organization to be abreast of technological development and innovation, which can in turn better satisfy customer requirements. Dell also aggressively searches for new partners and suppliers within the dynamic networked community (Saabeel et al., 2002 p. 9).

VO is a promising organizational form of the 21st century; I would like to make few recommendations for organizations planning to go virtual. Firstly, be flexible, flexibility is essential to innovation although VO supports only certain types of innovations. Going virtual assumes some cultural changes from the departments or individuals that are going to be involved in the VO. The communications that accompany these structural changes are critical to the success of the VO as they provide opportunities for members to understand roles and responsibilities as the organization changes (Grabowski, Roberts, 1998, p. 17). Once roles and responsibilities are known and organizational changes are carefully articulate, the issue of trust will be faced and the best way of dealing with it would be a creating of an effective shared culture. Each organization comes in with its own culture and since culture is tacit, the VO needs to foster a shared culture, group meetings with lateral organization forms would contribute to building this trust and culture. Some factors that would make the VO a failure are: lack of a share vision, not clearly identifying network members selected to participate, and having mission and goals incompatible with individual’s aspirations (Skyrme, 1999, p.6).


Grabowski, M., Roberts, K.H. (1997). “Risk Mitigation in Virtual Organizations” Journal Of Computer-Mediated Communications Online. Internet. 27 October 2002. Available:
Plant, R., Murrell, S. “The Agile Organizations: Technology & Innovation” Online. Internet. 27 October 2002. Available:
Saabeel, W., Verduijn, T.M., Hagdorn, L., Kumar, K. “A model of virtual organisation: a structure and process perspective.” Vol. 4 No. 1 Page: 1-17 (current article). Electronic Journal of Organizational Virtualness. Online. Internet. 27 October 2002. Available:
Skyrme, D. “Virtual Teaming and Virtual Organizations: 25 Principles of Proven Practice” Online. Internet. 27 October 2002. Available:
Su, Q., Chen, J., Lee, S. “Quality management system’s design for virtual organizations.” Vol. 3 No. 5 Page: 65 – 79 (current article). Electronic Journal of Organizational Virtualness. Online. Internet. 27 October 2002. Available:
Ulrich, F. “The Concept of Virtual Web Organisations and its Implications on Changing Market Conditions.” Vol. 3 No. 4 Page: 43-64 (current article). Electronic Journal of Organizational Virtualness. Online. Internet. 27 October 2002. Available: